The Woman Who Is the Beneficiary

There is a document in almost every Canadian household that nobody reads and that eventually hands one person, in one week, more money than she has ever held at one time. It is a beneficiary designation, it was signed years ago, and the person it names is usually a woman, because women outlive men and because of who tends to be named. Almost nothing has been written for her. There is a great deal written for the person buying the contract and almost nothing for the person who receives it, which is strange, since receiving it is the only part of the transaction that involves a real decision made under real pressure. This article is written for her: what she actually receives, how quickly the law says it has to arrive, what it is and is not subject to, what she has to produce to get it, and what lands on her desk in the first month. It is taken from the statutes and the administering bodies, not from an insurer.

She is not an heir, and that changes everything

The first thing to understand is a legal distinction that sounds technical and is in fact the whole of the difference: a named beneficiary does not inherit. She takes under a contract.

The insurer made a promise, in a contract, to pay a sum to whoever was named. When the event happens, the insurer owes that person directly. The estate is not in the chain. The executor or the liquidator is not in the chain. The will is not in the chain, because the money was never in the estate for the will to dispose of.

Article 2455 of the Civil Code of Quebec puts it in one sentence: sums insured payable to a beneficiary do not form part of the succession of the insured. Section 65 of the British Columbia Insurance Act arrives at the same place by its own route, providing that where a beneficiary is designated, the insurance money, from the time of the happening of the event on which it becomes payable, is not part of the estate of the insured.

Every practical consequence in this article follows from that one fact. It is why the money arrives quickly rather than at the end of an estate administration. It is why the creditors of the person who died generally cannot reach it. And it is why a designation that names the estate instead of a person produces an entirely different outcome, which is the point the Financial Consumer Agency of Canada makes when it says that naming the estate means the death benefit becomes part of the estate, and that where nobody is named the insurer will by default treat the estate as the beneficiary.

What it is not subject to

Three protections travel with the money, and they are worth knowing precisely rather than approximately.

The first is the estate itself, dealt with above. The money does not wait for an estate to be settled and it is not reduced by what the estate owes.

The second is creditors. Section 65 of the British Columbia Insurance Act provides that where a beneficiary is designated the insurance money is not subject to the claims of the creditors of the insured, and it goes further: while a designation is in effect in favour of any one or more of a spouse, child, grandchild or parent of the person whose life is insured, the insurance money and the rights and interests of the insured in it and in the contract are exempt from execution or seizure. Quebec builds the same protection differently. Article 2457 of the Civil Code provides that where the designated beneficiary is the married or civil union spouse, descendant or ascendant of the policyholder or of the participant, the rights under the contract are exempt from seizure until the beneficiary receives the sum insured.

The third is tax, and here the answer is narrower than the folklore. The Canada Revenue Agency lists, among amounts that are not reported or taxed, most amounts received from a life insurance policy following someone’s death. The Financial Consumer Agency of Canada describes the death benefit as a one time, tax free payment. What is NOT covered by that sentence is income the money earns once she has it, and the Agency is explicit that income generated by a non-taxable amount is taxable in the ordinary way. Interest an insurer pays for a delay in settlement is its own question and is dealt with as interest.

How quickly, according to the statute rather than to anybody’s promise

There is a clock, it is statutory, and it does not start when somebody dies. It starts when the insurer has what it needs.

In Quebec, article 2436 of the Civil Code provides that the insurer must pay the sums insured and the other benefits provided in the contract within thirty days after receipt of the required proof of loss. The Code sets a longer period of sixty days in accident and sickness insurance, unless the insurance covers losses of income arising from disability.

In British Columbia, section 73 of the Insurance Act does the same work in a different shape. Where the insurer receives sufficient evidence of the happening of the event on which the insurance money becomes payable, of the age of the person whose life is insured, of the right of the claimant to receive payment, and of the name and age of the beneficiary if there is one, it must pay the insurance money to the person entitled to it within thirty days after receiving that evidence.

Read those two provisions together and the practical lesson is the same in both places. The delay is almost never the insurer sitting on a file. It is the gap between the death and the moment the file is complete, and that gap belongs mostly to paperwork nobody had prepared. Which is why the next section matters more than any other on this page.

What she has to produce, in the words of the statute

Section 73 of the British Columbia Insurance Act is unusually useful here, because it lists the four things the evidence has to establish, and the list is a good working guide anywhere in the country even though the wording is that province’s.

That the event happened on which the insurance money becomes payable. The age of the person whose life was insured. The right of the claimant to receive payment. And the name and age of the beneficiary, where there is one.

Translated into what actually sits on a kitchen table, that is proof of death, proof of identity for the person claiming, something establishing who she is in relation to the contract, and the insurer’s own claim form. Quebec frames it as the required proof of loss under article 2436, which comes to the same practical place. The insurer will say precisely what it wants, and the contract and the claim form are the authority on the detail.

There is a harder case, and it is commoner than it should be: nobody is certain whether a contract exists at all. The OmbudService for Life and Health Insurance operates a policy search service for exactly that situation. Where a family’s own search produces no result, the ombudservice may be able to contact its participating companies to determine whether one of them holds a policy in the deceased person’s name. It publishes the requirements for making such a request, the circumstances in which it can and cannot conduct a search, and how to submit one.

The registered plans are a different question entirely

A great deal of confusion in the first month comes from treating everything with a beneficiary designation on it as though it behaved like life insurance. It does not.

A registered retirement savings plan is not an insurance contract and the tax rules are their own. The Canada Revenue Agency describes a refund of premiums as some or all of an amount paid out of an unmatured plan to a qualifying survivor as a result of the annuitant’s death, and it defines a qualifying survivor as the annuitant’s spouse or common-law partner, or the annuitant’s financially dependent child or grandchild.

That is a category with edges, and who falls inside it decides the tax treatment of the whole amount. It is one of the few places in the first month where the order of operations genuinely matters and where an accountant earns a fee several times over.

A segregated fund contract sits in between, and usefully so. It is an insurance contract, so a beneficiary can be named on it and the insurance law features follow, but what is paid depends on the contract’s own guarantee at death and on the value of the fund. Group life insurance is yet another file, held by an employer under a contract the household never saw, and the plan administrator is who to ask.

The decisions that arrive in the first month

Here is the part nobody warns her about. The money is protected, it arrives quickly, and it arrives in a month when almost nobody is in a state to make a decision about it. Then decisions arrive anyway, several at once, from people who mean well.

Some of them are genuinely urgent and they are short. The claim has to be made. The employer has to be told. A group plan may carry a conversion right with a deadline in the booklet. If the person who died held registered plans, the institutions holding them have their own forms and their own questions about who the survivor is.

Almost everything else can wait, and knowing which is which is the single most valuable thing this page can offer. A death benefit that sits for a few months in something plain and reachable has cost very little. A decision made in the third week, under pressure, about a sum that will not come again, can cost a great deal, and it cannot be unmade.

The other thing worth saying plainly is that nobody has the right to hurry her. The money is hers under the contract from the moment the event happened. The estate has no claim on it. The creditors of the person who died generally cannot reach it. There is no deadline in any statute quoted on this page that requires her to do anything with it by a particular date, and anybody who implies otherwise is describing their own timetable rather than hers.

If something goes wrong

Claims are refused sometimes, and there is a defined route that costs nothing to use. The OmbudService for Life and Health Insurance sets it out.

The denial letter itself carries instructions for appealing, and the first step is an appeal to the insurer with any further written detail that clarifies the circumstances. If that does not resolve it, the complaint goes to a complaint officer at the company, who has the authority to make a final decision, and who issues a final position letter.

Only then does the ombudservice come in. It cannot review a complaint until the insurer’s own internal process is finished, and once there is a final position letter and the consumer remains dissatisfied it may provide a free, independent and impartial review where the case is reviewable and has merit. It adds one practical note that is worth remembering: where an insurer takes longer than ninety days to reach a decision, the consumer can ask the ombudservice to contact the company about the status of the complaint.

And behind all of it stands the compensation association. Assuris is the body that answers if a Canadian life and health insurer itself fails, and membership is compulsory for every insurer authorised to sell in Canada. That is a different question from a refused claim and it is worth knowing which is which.

Frequently Asked Questions

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The designation itself is set out in naming a life insurance beneficiary and per stirpes and per capita. For what changes around her, read widowhood and what changes financially. The registered plan question is taken up in an RRSP or RRIF at death, and the Quebec procedure in the liquidator in Quebec. Transparency and compensation sets out what this firm is paid and by whom.